RBS's Stephen Hester steps down: Some of us may get a sense of déjà vu here

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Since Stephen Hester took the reigns at Royal Bank of Scotland, the bank’s balance sheet has shrunk by an astonishing £900bn. That’s a number that is all but impossible to comprehend, so look at it this way: it amounts to the combined value of the entire housing stock of Birmingham, Manchester and Glasgow. Multiplied by three.

In short, the really hard work of putting this bank right has been done. What remains amounts almost to house cleaning.

Some more of that was completed yesterday, with another 2,000 jobs slated to go from what remains of company’s investment banking business.

That is now a rump, with interests largely in the debt markets and some derivatives. Those who follow the sector may get a sense of déjà vu here: There are similarities with what a certain Bob Diamond started out with at Barclays Capital after Barclays had jettisoned big chunks of its investment businesses.

So could what Mr Hester has served up be privatised? Sure, fill your boots.

There has been talk of the Government pushing through a split if the Parliamentary Commission on Banking Standard calls for that. It would mean getting rid of RBS’s “bad bank”. But that’s shutting the stable door after the horse has bolted. Much of the bad bank has already been “de-risked”, which is why RBS was allowed to exit the Government’s asset protection scheme and why the Bank of England accepted RBS’s plan to boost its capital reserves.

With the “heavy lifting” nearly complete, RBS faces two problems. As analysts have pointed out, the outlook is decidedly cloudy: RBS won’t fall flat on its face, but making money for the bank it will become isn’t going to be at all easy.

Four-fifths of the business will come from the UK, and the UK’s economic prospects are less than sunny. Record low interest rates and something akin to money printing (quantitative easing) make it extraordinarily difficult for banks to make a profit. That’s why some analysts were screaming “sell” even before Mr Hester’s departure. More are now because the decision to remove him has damaged the bank’s credibility. The City’s view of RBS as an investment prospect is ice cold.

The Government could tap up its pals in the Middle East to take some of the state’s stake off its hands, but interest there has never been strong. That leaves us, the taxpayers. We’ll either be given shares, or will be asked to buy them. Don’t get too excited though: this is a world away from the sell-offs of BT or British Gas. Sid won’t mind if you don’t tell him about this one.

Video: Treasury - Stephen Hester 'saved RBS'

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